Freescale, with Solid Q2 Growth, Milks Auto IC Boom

MADISON, Wis. -- Freescale Semiconductor announced Thursday solid second-quarter financial results, with the company’s net sales at $1.19 billion, compared with $1.13 billion in the first quarter of 2014 and $1.04 billion in the second quarter of 2013.

Revenues of Freescale’s five key product groups — microcontroller, digital networking, automotive microcontroller and analog/sensor — grew across the board by double digits during the first half of 2014, compared with the same period a year ago, according to Gregg Lowe, president and CEO at Freescale. During the earnings’ call, Lowe noted, “We are growing our business at twice the speed of the market.”

Freescale boasted improvement in “its revenues, gross margins and earnings per share in the second quarter, both sequentially and year over year.” Lowe said, “All five product groups contributed to the growth, which is driving consistent gains in market share.”

Freescale, whose business at times has appeared sprawling, is today much more focused and positioned to milk the growth of the automotive market.

45 percent revenue from automotive Lowe acknowledged that 45 percent of Freescale’s revenues today are “automotive-related.” This includes technologies from mission-critical automotive MCUs to multimedia processors for car infotainment, sensors and radars. Freescale is largely profiting from the rapidly increasing semiconductor content inside cars, rather than its car unit’s growth.

Compared to some competitors who have only recently decided to exploit the rapid growth in automotive electronics, Lowe said, “We have historical relationships with carmakers going on for decades.” Considering the long gestation period necessary to crack the auto industry, Freescale feels that it is already well-positioned to swiftly grab the growing opportunity. In particular, Freescale’s robust microcontrollers built for safety-critical automotive functions are serving as a foundation to earn carmaker’s trust, Lowe added.

During the first half this year, the company’s microcontroller and digital networking groups both grew by 25 percent, while the RF group expanded by 40 percent.

RF net sales in the second quarter, including sales of power amplifiers to the wireless infrastructure market, were $120 million. On a sequential and year-over-year basis, RF sales increased due to increased spending on 3G and 4G wireless networks, particularly in China, according to Freescale. During the latest quarter, the company acknowledged that “the market was a bit hot for us,” its revenue thus constrained by supply levels. Freescale sees the demand for LTE to continue strong, 6% +48%

China factor Although still “in early phases,” Lowe said that Freescale’s new China strategy — under which Freescale added 10 new offices in China in 2013, along with a substantially increased local sales force — is “working very well.” Eight of the 10 offices, which “have hit the ground running,” have gained momentum and scored a number of design wins, Lowe explained. Asked which particular Freescale’s products are growing in China, the CEO said, “It’s really across the board, but in particular, general-purpose microcontrollers.”

Freescale is also expanding its presence in China’s automotive sector. It has become the number two automotive microcontroller supplier in China, after Renesas.

Freescale attributes its growth in the microcontroller group partly to the consolidation of the company’s global distributors in the first quarter. In the second quarter alone, it grew by 24 percent compared to a year ago. By narrowing its global distributors from three to two – Arrow and Avnet – Lowe said Freescale is getting more attention from both, while Freescale contributes a bigger percentage of their sales. The distributors play a critical role in selling microcontrollers in a fragmented market. Distributors offer Freescale “more feet on the street,” boosting its field resources.

It’s been two years since Lowe joined Freescale as CEO, moving from Texas Instruments. Asked what specific changes he has brought, Lowe said that it’s all about focus. “We’ve brought focus on the five key business areas, and we’ve concentrated our R&D investment on those five.”

He added, “Our engineers and our employees today really understand our goals.” The company’s attrition rate has been a record low and stands now at “a mid-single digit number,” he added.

I think the CEO of Freescale is right in his understanding and estimation of the Auto Electronics market, as most of the products are being supplied by Freescalse are going towards essentials for engine, braking, steering and other assemblies. Whereas the other newcomers are looking their positions in new segments of Auto Electronics like Autonomous Vehicle etc. I mean this what will be general trend in Auto Electronics market.

@Junko: I think your definition of 'new' needs to be qualified! One thing for sure is the automobile in general is undergoing a metamorphosis and nearly a century later, it will offer features no one ever imagined when Henry Ford's Model-T rolled off the line. So existing chip vendors in the auto market have expanded to 'newer' ones when opportunities were created by GPS, VAN, DSRC and in vehicle connectivity. So companies like TI, Maxim and Marvell that supplied non-communication type components (like power management and micro's) are now expanding to communication markets.

Companies like Nvidia see in-dash / in-seat displays as a whole new ball game and are racing to offer more for in-vehicle entertainment! I think a typical consumer is set to be bombarded with umpteen choices in the coming years when shopping for a new car!

This brings up one of my favourite albums that sheds a poignant look at this hyper amusement humans are racing to!

There are a number of new comers (Nvidia, Qualcomm, Broadcom, come to my mind) to the automotive semiconductor market in recent years. Would that be a threat? No, Freescale CEO thinks that his company is well positioned to grab the auto IC boom.

Does anyone think otherwise? Will the landscape of the automotive chip suppliers will change?